Business sale advice

[SportBilly]

Hi, I’m after some advice and opinion regarding selling a business.
I have agreed a sale, in principle, of one of my businesses but I’m not 100% sure that the route my accountant is suggesting we take is the best and only option.
It is a Ltd Co with 2 equal share Directors. The purchasers will be paying an amount of money for the goodwill and remaining order book. There are no assets to be included in the sale and this is where my query lies.
The company has cash in hand and owned vehicles totalling around £900k. I obviously want to be able to remove the cash and dispose of the vehicles in the most tax efficient way as part of the sale.
My accountant has said an MVL after the buyer has paid us is the best route.
I’d really welcome any opinions or thoughts. I’ve never sold a business before, I have always relied heavily on my accountant and generally trust his advice but this is a huge step for us and I want to make sure that, after years of making sure our customers and staff have been looked after and the sacrifices that’s entailed, we finally do the best thing for us.
Thank You

 

[Mark T Jones]

I would strongly recommend that you listen to your trusted professional advisor.

Taking professional vice then seeking random opinions from a forum as a fast route to disaster.

 

[SportBilly]

I would strongly recommend that you listen to your trusted professional advisor.

Taking professional vice then seeking random opinions from a forum as a fast route to disaster.

Thanks Mark.
I totally understand what you’ve said and appreciate the comment.

 

[Clinton]

I’ve never sold a business before...

Then you probably do not know that this is a lot more complicated than you think. So either your accountant understands M&A well (most DO NOT!) and you should take their advice, or you should go get independent advice from someone who knows what they're talking about.

You do not mention whether it's sale of shares or sale of assets but you give a clue in your mention of MVL. So it looks like it's an asset sale. What's left in the Ltd company will be whatever the buyer is not taking. It'll be up to YOU to dispose of the remaining assets and then deal with the money that comes in from these asset sales together with the cash in the business as it stands now, together with the cash the buyer will be paying (which will go into the business bank account, not to you personally!). Unless you've got a substantial DL you'll probably have to take this money out as a dividend and pay dividend tax on it (ouch!)

When exploring MVL, bear in mind that ESC C-16 no longer applies in the UK and be conscious about both the "retained profit" issue and the £25K limit (and how it applies).

If you had engaged someone to assist you through the negotiation etc., there is lots that could have been done with the buyer in relation to existing cash balance, vehicles etc. And with the tax planning / tax mitigation.

But it's too late now and you've probably lost at least a six figure sum as a consequence of being your own adviser so far!

But at least now, go pay well and engage someone who's understands the game.

On reading this post you may be tempted to check me out. That's fine, but please do not contact me to assist or advise on this deal.

 

[ChrisCallaghan]

Hi all,

@SportBilly as you are asking about a Members Voluntary Liquidation (MVL) it may be worth reposting your query in the Legal, Employment and Insolvency forum.

You do not mention whether it's sale of shares or sale of assets

He kind of does.... see below:

The purchasers will be paying an amount of money for the goodwill and remaining order book.

@SportBilly I think the route your accountant has suggested sounds sensible, specifically because you (or the shareholders more specifically) are looking to retain the cash reserves the company already has. If you sold the business (goodwill, order book, assets etc), your company will need to pay any relevant CT (which your accountant can advise on). You would then, in theory, be left with a company, that isn't trading, who's only asset is cash at bank (the £900,000 + the vehicles/proceeds from selling the vehicles + proceeds from the sale of the business). The MVL process, carried out by an insolvency practice, would then close the company and distribute these assets to the 2 shareholders. This is usually considered tax efficient, as the distributions to shareholders are treated as Capital Gains (currently 20%) and I suspect you would likely qualify for Business Asset Disposal Relief aka BADR (currently set at 10%, previously known as Entrepreneurs Relief).

No offense to @Clinton , but please don't over-concern yourself with his comment on ESC C16, as you are asking about closing your company through MVL, not striking off. If you attempted the above, but then tried to close your business via strike off, the shareholders would not be able to claim the distributions as a capital gain and/or BADR as the total exceeds £25,000.

The alternative would be doing a sale of shares, i.e. selling your company instead of your business. This is a lot simpler and wouldn't require going through an MVL, and you could still qualify for Business Asset Disposal Relief, BUT that would mean they buyers get everything, including the £900,000.

All of the above being said, I need to stress that I am not an accountant and the above is not formal tax advice, just my opinion.

I suspect your accountant will have a preferred insolvency practice they work with for MVLs. If not, I would be help and advise on the MVL side of things (quotes, process and an insolvency practitioner from my firm acting as liquidator). Feel free to DM me or get in touch via the details in my post's signature.

 

[Clinton]

@Chris Callaghan, "The purchasers will be paying an amount of money for the goodwill and remaining order book" doesn't mean anything. I've often had newbies, first time sellers not familar with the terminology, use the above kind of terminology even in relation to a share sale.

The alternative would be doing a sale of shares... BUT that would mean they buyers get everything, including the £900,000.

Not necessarily. The structure of the deal would typically be designed around a cost effective removal of anything over and above working cap requirements. But a large cash balance - large relative to turnover - may benefit from the vendors seeking HMRC's advance clearance on treatment of "excess cash".

In addition to BADR there may be Rollover Relief and other avenues worth exploring. The OP talks about "one of my businesses". If he's got multiple businesses and there's a holding company, there's possibly substantial shareholding exemption as well for a share sale of the sub.

Anyway, long story short, it's exactly as Mark said at the start - this is not a matter you resolve in a forum. You go pay for professional advice!

 

[PugwashEQ]

You'll be double taxed on the goodwill- asset sales are expensive for Ltd Co shareholders in the UK. They are usually only restricted to distress sales, or really small company sales. Its much more efficient to sell your shares in the Ltd Co.

It isn't too late to take proper advice, (its only too late if you've signed an SPA- or an APA in your case), but you'll need to get someone soon who knows what they're doing.

Having spent the past 2 decades in M&A (both for my own businesses and on behalf of clients), it is vanishingly rare to come across an accountant who has the knowledge and experience to properly advise on M&A (just as you wouldn't use us for accounting advice).

On the basis that you are unlikely to be a potential client for us, I'd be really happy to share some advice and pointers if that would help? you are welcome to PM me.

 

[ChrisCallaghan]

Anyway, long story short, it's exactly as Mark said at the start - this is not a matter you resolve in a forum. You go pay for professional advice!

Completely agree! I suppose my comments are mainly based on if the situation and sale going ahead remains as described by OP, that MVL sounds sensible to me. Best to take professional advice on the different ways OP's business could be sold coupled with good tax advice/planning. Most accountants can advise on the tax impact and/or benefits of an MVL. If MVL is then seen as appropriate, speak with an insolvency practice.

 

[pentel]

On the basis that you are unlikely to be a potential client for us, I'd be really happy to share some advice and pointers if that would help? you are welcome to PM me.

Pugwash gave me some very helpful pointers when I was going through a similar process to the OP. I would suggest @SportBilly takes him up on his kind offer.

 

[The Byre]

I have always relied heavily on my accountant and generally trust his advice

it is vanishingly rare to come across an accountant who has the knowledge and experience to properly advise on M&A

They are two very different and separate disciplines requiring different skill sets, experience and education. They must understand each other's fields but the quagmire and gotchas of an M&A gone wrong are very different from the quagmire and gotchas of the most absurd and convoluted tax system on Planet Earth.

After the three-year 'Sturm und Drang' of my own company sale that ended in 1999 (albeit with adult supervision) I left the latest sale three years ago entirely in the hands of an M&A specialist (who got four times as much as I expected!) and all I had to do was to confirm that the money had arrived on our bank account - and an accountant made sure that no further taxes were payable. Now that's the sort of M&A I can live with!

 

[Clinton]

... the quagmire and gotchas of an M&A gone wrong are very different from the quagmire and gotchas of the most absurd and convoluted tax system on Planet Earth

Indeed. And it's getting trickier and trickier. Business buyers have always had an advantage over sellers in the level of knowledge and deal sophistication they possess.

But it's become even more unfair of late given the flood of "courses" out there teaching business buyers a lot of crafty and crooked tricks.

There are decent and honest buyers but they're becoming a smaller and smaller proportion of total buyers in the market.

I'm trying to even the field a bit and I've today published a detailed article on how business sellers can protect themselves against some of the shadier tricks played by these "buyers" and "investors".

 

[The Byre]

That is a very good article and well worth reading!

Since coming to the UK, I have found the levels of seriousness around doing business in general to be very disappointing. And the buying and selling of businesses is no exception!

This is how it was done for us by a M&A person the last time - in Germany. (I only had a modest share in the company.) After a great deal of wrangling and negotiating, two purchasers emerged - one offered a low-ball sum and one went into healthy seven figures BUT did not (yet) have the money. They needed our agreement to sell in writing in order to raise the funds.

OK, no problem (said our M&A guy). Just pay a 5% non-refundable deposit - and they did. (I bought five nice prime movie lenses with my share of the deposit! Well-chuffed I was!) That was money they would never see again, regardless of whether the deal goes ahead or not. The deal as agreed was that they had one calendar year to complete and pay the rest.

Under German law, certain types of assets must be made via a so-called Notar (notary public). These are lawyers and nearly always very po-faced and extremely conservative. Their bread-n-butter is the sale of houses, but companies and other types of assets must also be completed through a Notar. That is the law!

That means that any money must also go through the hands of a Notar. He or she - or in our case, a whole gaggle of them - places all monies in specially protected customer accounts and only releases when all conditions of a sale have been fulfilled. This protects both sides of any deal.

When the one year was up, the remaining 95% was paid. They got what they wanted. We got what we wanted - and all was sweetness and light!

So my 30 cents worth is to ask any purchaser for a 5% non-returnable deposit, with shares to be lodged with a lawyer and transferred on completion of payment. (No doubt, @Clinton will disagree with me here and say that it is not always possible - to which my answer is "Well, they can F-off then!")

But back to the article - right at the bottom, you mention in your conclusions that deals up to seven figures are usually done in cash - no 'structured' deals. I come from a media background - trade mags, SME engineering companies for audio and video, local TV stations - that sort of thing. It could range from two-man shows to 200-man SMEs and they were always bought for cash. A larger media company would make an uncommitted offer, negotiations followed, then came due diligence and then came the money.

It was nearly always a larger company in that sector that wanted to swallow up smaller companies and add whatever it was there were offering to their overall range. These deals were done man-2-man. Larger family business buys small family business. Often, these people knew one another for decades. They had watched one another grow from a 2-man, to a 20-man, to a 200-man show - about the right size for the guy who started the whole thing to knock it on the head and start something else - like as wot I did!

But never any talk of "We have access to PE funds." or rubbish like that. The runners and riders behind a PE fund swallowing up trade mags will be known to any indi trade mag people. The same applies to most industries - people know one another!

But the market seems to be going partially in the opposite direction - the overheads of a large company are being reduced and small unprofitable product lines that were once indi SMEs are being weeded out and sold off or just discontinued. Staff then set up their own version - often with little or no overheads.

That just leaves your one-pound Charlies running around looking for suckers and given the slap-dash attitude that too many people seem to have when it comes to running an SME in the UK, the supply of suckers does not look as if it is going to fall any time soon!

 

[WaveJumper]

Indeed. And it's getting trickier and trickier. Business buyers have always had an advantage over sellers in the level of knowledge and deal sophistication they possess.

But it's become even more unfair of late given the flood of "courses" out there teaching business buyers a lot of crafty and crooked tricks.

There are decent and honest buyers but they're becoming a smaller and smaller proportion of total buyers in the market.

I'm trying to even the field a bit and I've today published a detailed article on how business sellers can protect themselves against some of the shadier tricks played by these "buyers" and "investors".

A very good read thank you for posting the link

 

[Clinton]

That is a very good article and well worth reading!

Thank you (and @WaveJumper ). As you've seen in the article, I picked out specific dodgy things being taught in one of those courses run by <removed> Jonathan Jay.

But it's similar to advice being taught in so many of the other "How to Buy A Business" courses!

Hopefully, it's plain from the quotes I provided in the article - exact wording of what Jay has said in his podcasts - just how crooked these people are.

My apologies that I didn't have the time or patience to sit through the hundreds and hundreds of this <removed> man's podcasts. But I did spend more than a few hours listening to his sh*t, and for that all of you owe me big time ?

 

[Lisa Thomas]

Yes an MVL may well be the most suitable option for the shareholders, assuming they fit the BADR criteria.

I'm sure @Chris Callaghan will give you a competitive quote and I'd be happy to give one too for comparative purposes.

 

[PugwashEQ]

Pugwash gave me some very helpful pointers when I was going through a similar process to the OP. I would suggest @SportBilly takes him up on his kind offer.

Thanks Pentel, it was absolutely my pleasure to help, if only in a minor way!